Factors Affecting Co-Operation in the Prisoner's Dilemma

TH E Prisoner's Dilemma is a 2·person situation in which each player must forsake the possibility of maximizing his own (short-run) profit to enjoy the greatest payoff (maximize long-run profit). An example is the decision of a duopolist to maintain the high price of his rival. Either firm would gain a considerable short-run advantage by cutting price. Thc inducement to cut price becomes even stronger after the other firm has done so, but if both firms resort to price cutting, the profits of both will fall .